Reassessment based on unverified investigation material fails where recorded reasons are factually wrong and additions lack supporting evidence.

Reassessment under sections 147 and 148 was found unsustainable where the Assessing Officer relied on Investigation Wing material without independent verification and the recorded reasons were factually incorrect. The reopening rested on alleged fictitious equity and derivative profits, but the disclosed profits were accepted and the belief for reopening was treated as mechanically adopted rather than genuinely formed. The disallowance of share-trading loss also failed because the stated basis for reopening did not survive in the completed assessment, and no adequate material linked the assessee to manipulative trades. The reassessment and resulting additions were set aside.

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Issues: (i) Whether reassessment under sections 147 and 148 was valid when the notice was based on Investigation Wing information without independent verification and the reasons recorded were factually incorrect; (ii) whether the disallowance of share-trading loss could be sustained when the reassessment was initiated on alleged fictitious profits and that basis did not survive in the assessment.

Issue (i): Whether reassessment under sections 147 and 148 was valid when the notice was based on Investigation Wing information without independent verification and the reasons recorded were factually incorrect.

Analysis: The reassessment was initiated on the premise that the assessee had earned fictitious profits from equity and derivative transactions. The record showed that the figures in the reasons were not verified independently and that the profits actually disclosed by the assessee were accepted in the assessment. The foundation for reopening was therefore treated as mechanically adopted material rather than a fresh and informed belief formed by the Assessing Officer. The Bench also noted that the reasons recorded were factually erroneous, which affected the very basis of the reopening.

Conclusion: The reassessment initiation was held to be unsustainable and the assessee succeeded on this issue.

Issue (ii): Whether the disallowance of share-trading loss could be sustained when the reassessment was initiated on alleged fictitious profits and that basis did not survive in the assessment.

Analysis: The addition was made by disallowing the loss claimed on transactions through brokers, although no addition was ultimately made on the alleged fictitious profits that formed the stated reason for reopening. The Bench held that once the recorded reason did not survive in the completed assessment, the Assessing Officer could not sustain a fresh addition on a different footing in the reassessment proceedings. The loss disallowance was also found unsupported by adequate material connecting the assessee with the alleged manipulative trades.

Conclusion: The disallowance of loss was held to be unjustified and the assessee succeeded on this issue as well.

Final Conclusion: The reassessment and the resulting additions were set aside, and the assessee obtained full relief in all the connected appeals.

Ratio Decidendi: Reassessment must rest on a genuine and independently formed belief based on correct facts, and where the recorded basis for reopening does not survive, a different addition cannot be sustained in the reassessment proceedings.

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